Where are we overreacting today?
By Scott Sumner
When you look back at postwar history, you see lots of examples of where the consensus of opinion overreacts to a perceived threat. Here are three examples, but there are many more that could be cited:
1. After the Soviet Union occupied Eastern Europe and developed nuclear weapons, there was a second “red scare”. (The first occurred right after WWI.) Eventually this led to an overreaction, including McCarthyism and US involvement in the Vietnam War. (Some would cite Korea as well; that’s more debatable.)
2. After the severe 1981-82 recession and deindustrialization in the Rustbelt, a consensus developed that Japan was an economic threat to the US. This led to some unfortunate protectionist policies.
3. After 9/11, a consensus developed that Saddam Hussein was a threat to the US. Many people now wrongly believe that this threat was manufactured by Bush and Cheney. Not so, support for the Iraq war crossed partly lines. For instance, had Gore won the 2000 election; he planned to make Richard Holbrooke his top foreign policy advisor. Gore’s campaign was quite hawkish, more so than Bush’s. Top Democrats tended to support the war (Clinton, Kerry, Holbrooke, and many others.) It was a product of elite opinion, crossing party lines.
Of course there are differences here. Communism and Saddam Hussein really were threats, to which we overreacted. In contrast, Japan was not a threat at all.
My question today is, “To which perceived threats are we currently overreacting?”
There are lots of possibilities, including Russia, Iran and North Korea. But the greatest over-reaction seems to be occurring to the rise in China. The threat from China is described in four different ways:
1. China as an economic threat to the US jobs market.
2. China as a threat to our technological supremacy.
3. China as a military threat, probably more to its neighbors than the mainland US.
4. China as a political threat, an alternative model to the democratic liberalism promoted by the US until 2017.
The first point is easiest to dismiss, as it’s based on bad economic theory. As Paul Krugman pointed out in “Pop Internationalism”, whenever someone says that traditional free trade theory does not apply to a particular real world case, it’s usually the case that the speaker does not understand the basic theory of comparative advantage.
The second point is harder to dismiss. In my view, there can be more than one leader in technology. For instance, China currently leads the US in areas such as 5G networks, electronic money and high-speed rail. We lead China in many more categories. Each country can learn from the other, and adopt the best technology from overseas.
On purely theoretical grounds, it might be true that China slows technological progress by stealing ideas and undermining intellectual property rights. But overall, the gains from China almost certainly outweigh the losses. Here are two examples to illustrate my point:
a. Chinese firms often pirate Microsoft Windows. This gives Bill Gates a bit less incentive to develop improved versions, compared to the situation where China does not pirate Microsoft Windows.
b. China provides an extraordinarily efficient manufacturing platform for products such as Apple iPhones.
I can’t prove this, but I suspect that the Chinese piracy of Microsoft Windows does not dramatically reduce innovation in that space; Bill Gates still learns a lot of money from markets where his products are not pirated (more than $100 billion!), and still has lots of incentive to innovate. The piracy is not nothing, but it’s also not a huge problem.
In contrast, China is a huge boon to companies such as Apple, and allows the iPhone to be far more widely adopted than if China did not exist. That dramatically boosts profit margins at Apple.
In net terms, China’s probably a plus for the US. That doesn’t mean we should not encourage them to crack down on piracy, just that the technological threat is probably overdone.
Technology also overlaps with military capability, the third perceived threat. China’s military is improving over time, but will likely never be a direct threat to the US. Rather, the fear is that a stronger China will lead to more “hegemony” over its neighborhood. Fortunately, China is not like the Soviet Union, and does not seek to create a large empire. Its foreign policy is relatively isolationist. Surprisingly, China is actually smaller than it was 100 years ago, when it was a weak country, despite being far more powerful today than in 1919:
China’s dominant ideology is, “don’t interfere in the internal affairs of other countries.” In this respect, the West is actually quite lucky. What if China were not isolationist? What if, like the US and Russia, China believed it were appropriate for great powers to overthrow governments that it did not like? In that case, we’d be far more worried about the rise of China. Isolationism has pluses and minuses, but when the great power is not a liberal democracy, we should actually be relieved that it has an isolationist ideology.
That doesn’t mean that China has no involvement in the rest of the world; they sometimes bribe local politicians, for instance. But that involvement is mostly linked to encouraging other countries to be friendly to China. It does not involving bombing countries to achieve regime change.
Another fear is that a Chinese hegemon would promote the illiberal model wherever possible. I doubt that will occur. They often have friendly relations with illiberal regimes, but not because they are illiberal. Rather, those regimes will often support China in the UN, against Western countries that wish to use sanctions to promote human rights.
In fact, I suspect that China wishes that North Korea had a domestic political model more like that of South Korea, as long as the North continued to be an ally of China. South Korea is a very valuable trading and investment partner for China, while North Korea is not. China understands that highly illiberal regimes tend to be quite poor, and that its export juggernaut makes much more money selling to liberal places like Germany than illiberal places like Tajikistan.
China wants other countries to have friendly relations with China. Period, end of story. That have no interest in promoting illiberal policies in the rest of the world.
I’d even go further. Not only do the Chinese not care very much about the domestic policies of other countries, they actually find it hard to believe that other countries do care. They believe that there is a hidden agenda when the West claims to care about human rights. In that respect, China’s view is similar to that of left wing intellectuals who claim that whenever the US is ostensibly promoting human rights, there is always a hidden agenda to either increase our military dominance or help our multinational corporations. I’m not defending that cynicism (I don’t entirely agree), just describing it.
To conclude, while I believe that many current “threats” will later be seen as being exaggerated (especially Iran), I see China as the threat most likely to eventually seem to be greatly exaggerated. It’s the 1950s Soviet threat (military, technological, ideological) and the 1980s Japanese threat (jobs, technological) all wrapped up in a single country. That’s really scary to a lot of people. But on closer inspection it’s actually much less scary than it seems.
Of course that’s not to say that the fears are entirely groundless; just recently China arrested two Canadians, in apparent retaliation for the arrest of a top Huawei executive. One can find numerous other examples. Rather the argument is that the scale of concern about China is out of proportion to the actual threat.
PS. Pierre Lemieux has a post providing some more reasons not to worry about the rise of China.
PPS. I understand that China cares about what other countries think of Taiwan and Tibet. I’m not saying they don’t care at all about foreign countries, or that they don’t engage in activities such as spying. My point is that they don’t care very much about the type of regime that other countries choose to have. That’s very different from the Soviet Union during the Cold War.
PPPS. Al Qaeda is another threat we overreacted to (after 9/11, we underreacted before 9/11). Another example is marijuana. Another example is immigration. Another is the threat of children being kidnapped. Another is second hand smoke. Another is “Baby, It’s Cold Outside”. There are many more examples. Feel free to add them to the comment section.
Overreaction to perceived risks is itself one of the greatest threats to our liberty.
Underreaction to threats? How about nuclear war, bioterrorism, AI run amok, solar flares. I’m tempted to add global warming, with the caveat that many people overstate the threat.